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Rapid Response: Musk settles with SEC

BIScom Subsection: 
Editorial Staff

It's one of the quickest settlements that the USA's Securities and Accounts Commission will ever see. On 27th September, civil proceedings were started. That was Thursday. The proceedings were, it has to be said, no surprise but while the "what" was expected, the "when" was unknown. After all, American prosecutors and regulators enjoy the glare of publicity and trying their cases in the court of public opinion long before they ever get to a court room. But Elon Musk, who is increasingly demonstrating deteriorating judgement in so many ways, is nothing if not decisive. On Saturday, 29th September, the SEC issued a statement: the SEC and Musk had settled and Musk didn't do anywhere near as badly as the SEC had applied for. But there is a sting in the tail.

The headline is straightforward: Elon Musk is no longer the Chairman of Tesla, Inc., a publicly traded company (NASDAQ: TSLA). However, he remains its Chief Executive Officer. Tesla is, at best, a difficult company to read. Musk made a great deal of money when he sold his interest in PayPal to Ebay. He bought a small-time manufacturer of electric vehicles, change its name and took it public. The company bought an enormous redundant factory building even though, at the time, it had almost nothing to put in it. There has been considerable development of rechargeable batter power and Musk, ever the publicist, has hit the headlines with a massive rechargeable plant in Australia and Tesla bought the USA's largest supplier and installer of residential photovoltaic panels. The car company and the solar panels business are money pits. Investors have expressed concern that there is no clear strategy for bringing the company to profit and that development cannot be considered an objective in itself. In short, they want Return on Investment not to have their money locked up in a media darling that, just like the dot com bubble days, soaks up cash with only a vague idea of if there will be profit and how it will be generated. It's made worse by Musk's habit of announcing what, in the software industry, would be known as vapour ware although in Musk's case there is at least something resembling the finished product when he talks about it, even though production dates are seemingly plucked from the air.

In recent weeks, Musk has found himself embroiled in libel litigation over unfounded and frankly outrageous slurs on the character of one of those working to rescue a number of boys trapped in a cave in Thailand. He issued a video-pod-cast in which he was smoking a substantial reefer and seemed to be under the influence. Musk says that the podcast was recorded in California where recreational marijuana has recently been made legal but that's not the point: there is a public perception that he may be in less than full command of his faculties while making important statements and, even, decisions.

Entirely separate to Tesla, he has built a team which has developed SpaceX, which is both technologically superior to almost all government-backed space projects but is also more cost effective.

If one was to wonder why Musk was in such a hurry to settle with the SEC, one might imagine that it was to avoid bad publicity and disruption at Tesla. Cynics would say that it was to avoid any knock-on effect at SpaceX. After all, the SEC's nuclear option was to have him banned from any involvement with any public company - and that opened the door for him to be banned as the officer of any company.

On Saturday, the SEC issued proceedings against Tesla, Inc. Those proceedings alleged that Tesla failed "to have required disclosure controls and procedures relating to Musk’s tweets." As part of a combined settlement, Tesla, Inc. agreed to settle. Tesla and Musk will each pay USD20 million in financial penalties. They are not "fines" and there are no "charges" in the true, criminal law, sense of the word.

The SEC settlement includes the weasel clause "without admitting or denying the SEC’s allegations," which means that no third party may rely on any admissions, actual or implied, in the SEC's action.

The settlement removes Musk as Chairman for three at least three years. It requires the appointment of two independent directors and a new committee of independent directors. In short, it's a public company not Musk's personal domain. The company will also vet Musk's communications, so his Tesla related social media will be under constant review prior to posting.

The settlement is subject to Court approval but it can be regarded as a done deal. Tesla, on the other hand, has not yet updated its board and/or the investor relations page of its website, as the graphic above shows.

Further reading
Complaint - Tesla http://www.sec.gov/litigation/...
Complaint - Musk http://www.sec.gov/litigation/...